Economic Logic, Too

About Me

I discuss recent research in Economics and various events from an economic perspective, as the name of the blog indicates. I plan on adding posts approximately every workday, with some exceptions, for example when I travel.

Tuesday, October 30, 2012

Western nations, and especially the United States, put a lot of effort into nation-building and democratization in developing economies. The premise is that democratic countries are more peaceful, and they grow richer thus opening new markets. The problem is that if there is a correlation between democracy and the wealth of nations, the causation actually goes the other way: wealth brings democracy. Then if we could pick dictators to promote growth, which should they be? The benevolent dictator may be an elegant theoretical construct, he is difficult to find in reality.

Giacomo de Luca, Anastasia Litina and Petros Sekeris look at high unequal societies and find that in some circumstances autocratic dictators actually generate more growth than democracy (where the median voter is the dictator). The key is that dictator needs to be very rich, so much so that his interests overlap significantly with those of the country, and thus also the interests of other capital owners, as long as capital-ownership is highly concentrated. A wealthy median voter, though, prefers democracy. The logic is that redistribution lowers growth, thus rich capital owners always prefer dictators. With a lot of inequality, the median voter is poor and wants redistribution, this yields low growth. But if the median voter is relatively rich, she wants little redistribution and we have more growth, even more than with the dictator (who still has kleptomaniac tendencies, after all).

It could not be agreed more emphatically that growth should ideally take place within the borders of democracies. Unluckily, it is also historically true that dictatorial regimes have prevailed quite often. In the light of these recognitions this research aims to highlight the alarming observation that even a non democratic regime or a regime that is corrupt, it can still be preferred by societal groups that value growth rather highly and that have the political or economic power to impose these regimes. The findings of the research accord well with the historical facts in Latin America where the rich elites have always been supporting corrupt dictatorial regimes.

Therefore, uncovering and understanding the elementary motives behind supporting dictatorial and corrupt regimes is critical for fighting against them.